Shareholders Have An Absolute Right To An Auditor And To Audited Financial Statements
Financial Hardship is Irrelevant, Says B.C. Court of Appeal
In a decision released on January 29, 2014, the B.C. Court of Appeal ruled that companies incorporated under the Canada Business Corporations Act must, by operation of law, appoint an auditor, and thereafter produce annual audited financial statements. The Court has no discretion in this respect, and the particular financial circumstances of the company are irrelevant.
The decision of the B.C. Court of Appeal in Li v Global Chinese Press Inc is not particularly revolutionary - lower courts in Ontario ruled in exactly this same way as recently as 2007. But it is the first appellate case in Canada standing for the proposition that shareholders have an absolute right to an auditor and audited financial statements, and therefore it is a noteworthy case.
The CBCA Provisions
Section 162 of the CBCA states in mandatory terms ("shall") that shareholders will appoint auditors annually:
162. (1) Subject to section 163, shareholders of a corporation shall, by ordinary resolution, at the first annual meeting of shareholders and at each succeeding annual meeting, appoint an auditor to hold office until the close of the next annual meeting.
(2) An auditor appointed under section 104 is eligible for appointment under subsection (1).
(3) Notwithstanding subsection (1), if an auditor is not appointed at a meeting of shareholders, the incumbent auditor continues in office until a successor is appointed.
(4) The remuneration of an auditor may be fixed by ordinary resolution of the shareholders or, if not so fixed, may be fixed by the directors.
The only way to avoid appointing an auditor at an annual meeting is by shareholder resolution: see section 163. Under the CBCA, such a resolution had to be passed unanimously by the shareholders, and such dispensation can only be made by companies that are not "distributing corporations" (i.e., in general, only private companies can rely on this provision).
Section 155 of the CBCA, relating to annual meetings of shareholders, also speaks in mandatory terms. It says that the directors of a corporation "shall" place before shareholders at every annual meeting, comparative financial statements, "the report of the auditor, if any", and any further information respecting the financial position of the corporation required by the corporate bylaws and related constating documents of the corporation.
As noted above, the directors of a company are required to...
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